IRS OK's Donation of Excess Assets to Charity

In a private letter ruling dated November 20, 2000, the
IRS held that funds left in a voluntary employee benefits
association (VEBA) trust after all benefits could be paid,
could, in fact, be distributed to a public charity without
triggering any penalties or excise tax. The ruling
was published only recently, according to Dow Jones.

Typically the excess would be carried over to a
successor plan, or distributed to participants.
However, in this case the IRS held that since the company
that sponsored the plan no longer existed, and could not
benefit from the funds, or any resulting goodwill, there
would be no tax abuse in donating the excess to
charity. The IRS didn’t reference any ERISA issues in
making its determination.

The VEBA was established to provide health/dependent
care benefits to employees, but the employer went bankrupt
and the trust was established to administer the VEBA.
After all plan obligations were met, an undisclosed amount
of monies were left over – an unusual result under the
circumstances.

Private letter rulings apply only to a specific
situation, and don’t establish a legal precedent for
others. Still, they do provide insight into how the
Service’s thinking on different issues.